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Published on: Sept. 7, 2020, 12:02 a.m.
Remittances fall
  • Flyers land at Kochi airport. Picture courtesy: Indian Express

By Rakesh Joshi. Executive Editor, Business India

India undertook one of the biggest repatriation efforts (Vande Bharat Mission) to rescue its citizens stranded in different parts of the world as a result of the Corona virus outbreak. Many expatriate Indians have been at the receiving end of job cuts and losses in these countries. While this, in itself, was a mammoth and incomplete task as there are nearly 2 million NRIs (non-resident Indians) in the ten countries that have seen the maximum number of Corona virus cases, another challenge is unfolding now. New Delhi is coming to terms with the prospect of a dip in the remittances coming into the country.

Remittances are important for families of migrants in India as an additional and significant source of income to provide for food, education, medicine, and other needs. The squeeze will be especially felt in the case of Indian expatriates working in the Gulf countries. Dipping oil prices have already led to some of these countries outlining plans to cut down on their expatriate work forces.

This dip in remittances will directly impact the economy. According to a World Bank report, remittances to India are expected to drop by a massive 23 per cent from $83 billion in 2019 to $64 billion this year as a result of the pandemic.  UBS, in a report dated 23 July, said the drop could be 25 per cent. In 2018, remittances formed 2.9 per cent of India’s total GDP.

As per data released last year by the UN Department of Economic and Social Affairs (DESA), in terms of the country of origin of international migrants, India stood right at the top with 17.5 million persons living beyond its shores. From this number, approximately 8.5 million are employed in the Gulf, who incidentally account for more than half of the total remittances sent to India. “According to our analysis, every 10 per cent decrease in oil prices, reduces remittances to India by 7 per cent in the long-run,” UBS economists Tanvee Gupta Jain and Rohit Arora wrote in their report.

Gulf countries constitute roughly 62 per cent of India’s remittances. Officials say that India being a net importer of oil, the fall in global crude oil prices is generally regarded as good news since it reduces the country’s trade deficit. However this time around, it has contributed to weaker growth in the Gulf Cooperation Council countries, affecting the inflow of remittances. The weak economic growth in the United States would also adversely impact employment there and therefore, the remittances to India. The US and Canada account for nearly 20 per cent of remittances to India. As the US is the hardest hit by the pandemic in terms of number of deaths, the Corona virus outbreak has affected Indian expats there. A record number of people have been rendered unemployed in the US. More so in an election year, since President Donald Trump is under pressure to provide jobs to American citizens first.
 
Big task

The fall in remittances will hit different states differently. “The decline in foreign remittances because of a meltdown in global economy including Middle East is likely to significantly impact southern states like Kerala which receives the highest amount of remittances. This was critical when the state reeled under severe floods in 2018. This could also result in lower bank deposits in such states, and that would bring down household savings,” said Soumyakanti Ghosh, group chief economic advisor at State Bank of India group.

This drop in remittances comes even as New Delhi tries to kick-start its economy in the wake of the lockdown imposed due to the pandemic. These overseas Indians, who are now back, will need to be gainfully employed within the country, which will be a big task as employers all around the world, including in India, are cutting down on jobs at the moment as the market looks glum. Besides, India first needs to find avenues to keep its own domestic workforce employed.

While India will be unable to make up for the fall in remittances in the short-term, what it can do is find ways to employ some of these overseas workers in high-value sectors. This will also provide New Delhi with an opportunity to reverse a part of the brain drain that has taken some of the best minds away from Indian shores in the past.

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